By  on August 17, 2006

NEW YORK — William P. Lauder, president and chief executive officer of the Estée Lauder Cos. Inc., outlined a new strategic plan for the beauty giant Wednesday that includes more international development and less dependence on the American department store channel, niche acquisitions and continued growth in such brands as MAC and Clinique.

The Lauder ceo disclosed the plan as the company posted lower profits on higher sales for the fourth quarter and year-end. For the fourth quarter ended June 30, the beauty company's net earnings from continuing operations fell 27 percent, to $49.1 million, or 23 cents a share, from $66.6 million, or 30 cents, in the prior year on sales that jumped 5 percent, to $1.6 billion from $1.5 billion.

Excluding restructuring costs and a charge relating to a tax settlement, net earnings from continuing operations were $108.8 million, or 51 cents. Analysts' consensus estimate was for earnings per share of 48 cents.

For the year, net earnings from continuing operations fell to $324.5 million, or $1.49 a share, from $409.9 million, or $1.80, on sales that rose 3 percent, to $6.46 billion from $6.28 billion. Excluding the charges, net earnings from continuing operations came in at $437.4 million, or $1.92 a share, for the year-end period.

"Even as we dealt with short-term adversities, we had made substantial improvements in the way we run our business," William Lauder said on a conference call with Wall Street analysts. "As a result, we believe we are poised for solid improvement, and are well positioned to increase stockholder value."

He told Wall Street the company would diversify its business and tap emerging markets while continuing to cut costs to strengthen the bottom line.

Management said in a conference call there would be "no material impact" on Lauder's bottom line from new restrictions on duty free sales.

For fiscal 2007, Lauder said the company would sharpen the focus of its branded goods with specialized marketing programs and more customization. Gift contents will be updated and honed, and beauty advisers will get more training to "help consumers make the appropriate choices."

The company cited department store consolidation as a challenge to fiscal 2006 results, but Lauder said it would be a benefit over the long term."While we have had to deal with department store consolidations over the past several years, the Federated-May merger has had the biggest impact," Lauder said on the conference call, adding that 2006 results were also hampered by adverse weather conditions in the Gulf, which forced the company to buy back inventory. "Despite the setbacks, we boosted sales for the year. In addition, by enacting tighter cost controls and strengthening and supporting our core brands, we were able to achieve a solid bottom line."

The ceo said the company wrapped up a global brand study that showed Estée Lauder as a "brand consumers respect and trust." The ceo said the company's fiscal 2007 initiatives "are designed to reinforce those brand attributes, and hone our focus."

"To start, Estée Lauder will simplify the myriad choices consumers face as they shop for beauty products," the executive said.

Key to the initiatives is diversification of the company's distribution. "The company was built on a department store distribution model, but we have to keep pace with the times," Lauder said. "Our international business has experienced robust growth, and, as such, North American department stores currently represent less than 40 percent of sales."

Lauder said he was pleased to see department stores evolving into international players, "and move beyond their regional focus."

"We continue to believe consolidation will be a positive development in the long run," Lauder said, adding the company was excited about its national ad platform with Macy's and Bloomingdale's. Lauder said he expected "coast-to-coast advertising will attract new consumers to our brand."

Online sales continue to grow and offer more opportunity. "Last year, our Internet operations contributed meaningfully to the bottom line, and U.S. sales surged more than 30 percent," he said. "We expanded e-commerce internationally by launching sites for Esteé Lauder, Clinique, MAC and Origins in the U.K. MAC expects to launch e-commerce in France and Australia this year."

Lauder said Clinique "has a unique place in our portfolio," and described it as "the most universally accessible brand" to consumers in price and function.

"We believe we have an enormous opportunity to expand Clinique even further," Lauder said. "We will invest in Clinique in fiscal 2007 to facilitate growth in the U.S. and build on the brand's momentum overseas....Clinique will stress key points of differentiation through smart, compelling print ads, national TV commercials and the Internet, and other technology such as text messages to reach consumers."Lauder said the plan for MAC is to aggressively "expand freestanding stores" and enter additional countries.

For the year-end period, sales in local currency by region were strongest in Asia-Pacific, gaining 7 percent, to $869.7 million.

By category, hair care swelled 16.5 percent, to $318.7 million, while makeup gained 6.6 percent, to $2.5 billion. Skin care rose 3.4 percent, to $2.4 billion. Fragrance sales fell 2.3 percent, to $1.21 billion.

In way of guidance, the company expects net sales to grow between 5 percent and 7 percent for the first quarter and the full year. First-quarter earnings per share are pegged between 15 cents and 20 cents, which is below most analysts' estimates of around 30 cents.

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